"The Biggest In History." How Does The 2023 Minimum Wage Increase Impact Businesses?

On Friday, 2 June 2023, the Fair Work Commission (FWC) announced a minimum wage increase for Australian workers. From 1 July 2023, Australian minimum wage workers will be entitled to an 8.65% wage increase, and award workers’ wages will increase by 5.75%.

“The 5.75 per cent increase to awards is the biggest in history and will help 2.7 million workers,” commented Treasurer Jim Chalmers in the wake of the announcement.

Alongside changes to the national minimum wage and award wages, the super guarantee rate will increase from 10.5% to 11%.

The increase in both wages and superannuation is a huge win for minimum wage and award workers, who have undoubtedly struggled through the last 12 months of surging inflation, rent increases, and interest rate rises.

On the flip side, while the increases are a positive move for workers, minimum wage increase announcements are often a contentious issue for businesses. The recent decision may prove challenging, particularly for those in the retail and hospitality industries, which are already struggling due to rising inflation and the cost of living crisis. 

• How are businesses impacted?
• Impact on retail businesses
• Impact on hospitality businesses
• How can your business manage staff costs?

How are businesses impacted?

The mandatory wage rise will disproportionately impact the retail and hospitality sectors, as both industries rely heavily on award workers. 

While there are over 120 industry awards in Australia, four of the five most common awards, covering the largest number of employees, apply to the retail and hospitality industries. 

According to the FWC, in 2023, the top five most common modern awards accounted for almost half of all modern award-reliant employees. These were: 

• General Retail Industry Award 2020
• Hospitality Industry (General) Award 2020
• Fast Food Industry Award 2010
• Restaurant Industry Award 2020
• Social, Community, Home Care and Disability Services Industry Award 2010

Why is this important?

With so many employees covered by an industry award, retail and hospitality businesses will see their employee wage bills rise considerably come July 1, 2023.

Before the FWC ruling, many hospitality and retail industry groups had called for a 3.5% – 4% wage increase, as they feared anything higher would impact the bottom line of small businesses already feeling the pinch.

Luke Achterstraat, Council of Small Business Organisations Australia CEO, said he was “deeply concerned” by the new wage increases and the impact they could have on businesses across Australia. 

“The minimum wage increases do not easily translate to higher earnings for these business owners,” he commented. “Small business owners are currently working for a low return.”

Andrew McKellar, the chief executive of the Australian Chamber of Commerce and Industry, also pointed to the financial pain the increases will cause small businesses. 

“Taking account of the 0.5% increase in the superannuation guarantee from July 1, this represents a significant burden for small business and risks unlocking the floodgates for deep and prolonged economic pain,” McKellar said.

“[The] decision will come as a hammer blow for the 260,000 small and family-owned businesses who pay minimum and award wages,” he said.

Minimum wage increase: impact on retail businesses

While retailers acknowledge the increase in minimum wage is a positive step for their employees, many of whom are struggling in the current cost of living crisis, most retailers agree that it will have a detrimental impact on their business. 

Retail business owners are worried that the wage increases will add further financial pressures to their businesses at a time fraught with financial strain and uncertainty. 

Australian Retailers Association CEO, Paul Zahra, echoed this sentiment. 

“Many retailers are under enormous financial pressure, with rising operating costs across the board,” Zahra said.

“Supply chain costs have increased, utilities have increased, rent has increased, materials have increased, and now labour will increase substantially. This is before factoring in that discretionary spending is softening – leaving many retailers concerned about operating costs.”

Jobs as risk

With sky-high operating costs and a considerable increase in employee wages, many in the industry fear this will inevitably lead to job losses later in the year.

For many retailers struggling during the current cost of living crisis due to reduced consumer spending, the mandated wage increases may become unmanageable, resulting in staff layoffs or reduced working hours.

“At every turn, business owners are being crunched with additional costs – interest rates, rent, electricity, and they were already facing an increase in the superannuation guarantee from 1 July,” commented Lindsay Carroll, Legal Director at The National Retail Association.

“Now they are expected to find an additional 5.75 per cent for their wages bill at a time when costs are rising across the board, and consumers are tightening their belts.”

Minimum wage increase: impact on hospitality businesses

The implications for hospitality businesses are similar to those in the retail sector. 

The rise in award wages will be another blow to struggling hospitality venues, which have witnessed a 10% rise in wages in less than a year. Unlike for retail businesses, a 4.6% – 5.2%  rise in hospitality wages was deferred until October 2022, so the new rate rises come in quick succession and will impact hospitality venues’ bottom line.

Impact on profitability

According to a recent report, the average profitability of a hospitality business has been negatively impacted by rising costs. Despite an increase in sales, food profitability has decreased by 3%, and beverage profits are down 2%.

A separate report by the Restaurant & Catering Association (R&CA) found that, in 2023, 44.9% of hospitality businesses witnessed a decrease in their net profit. The report attributes this decline to the ongoing economic conditions faced by venues and the impact of staffing costs on the industry.

To counteract high staffing costs, the R&CA report found that approximately 40% of business owners worked 20 or more unpaid hours in their business – an unsustainable practice that will inevitably impact employment levels.

Long-term outlook

While rising wages are only one part of the problem, they pose a considerable financial burden for hospitality businesses, and the long-term outlook for some venues is bleak. 

R&CA asked business owners if they expected their venue to be operating 12 months from now. Unfortunately, 5.7% indicated that they were not intending to operate in the coming year – highlighting the detrimental impact of mandated cost increases for businesses that are simply beyond their capacity to absorb.

How can your business manage staff costs?

Many business owners will now be looking for a way to optimise their staffing costs to reduce the financial impact of the new wage increase. 

While cutting staff hours may seem like the obvious solution, this may have a detrimental impact on your business – such as longer wait times or below-par customer service. Instead of reducing staff hours in an attempt to save on your wage bill, there are other ways to optimise your staffing costs while keeping your team employed. 

Here are four key tips to keep in mind.

1. Know your award

The first step to effectively managing staff costs is understanding the award that applies to your employees.

Employees in the retail industry, for example, will be covered by the General Retail Industry Award. Whereas hospitality workers will be covered by either the Hospitality Industry (General) Award, Registered and Licensed Clubs Award, Fast Food Industry Award or Restaurant Industry Award.

The next step is to ensure you’re aware of key provisions in your award that can trigger higher payments and take steps to minimise these instances occurring.

Keep an eye out for the following:

• When Overtime applies – Many awards dictate a maximum number of hours per day that an employee can work before overtime is payable.
• Juniors serving alcohol – Many awards state that junior employees must be paid the adult rate if they are serving alcohol
• No meal break penalties – Many awards state that employees must receive penalty rates if they are not permitted to take a meal break
• Weekend and early/late work penalties – Many awards state that higher rates must be paid for weekend work or work considered early or late.

2. Cost your roster using software

Several rostering platforms on the market, like Deputy, Tanda and Employment Hero, will help you understand your staffing costs in detail.

Rostering platforms often let you cost rosters to understand how much each shift will cost, and it’s sometimes possible to play around with different hiring models to see the impact it has on your costs.

Below are a few scenarios to consider: 

• Have you considered a 4-day workweek? 
• Replacing permanent staff with casuals or vice versa? 
• Reducing overtime by calling in another staff member and sending someone else home?

It may sound small, but little changes like these often have a big impact on the bottom line and can save you thousands per year.

3. Plan ahead and analyse actuals

It’s essential to look ahead and plan your roster based on known busy periods and usual trade patterns.

Cost the roster for the week ahead and compare this to an income estimate to obtain a wage cost percentage. You can estimate your income based on:  

• Predicted sales
• Average transaction value
• Average weekly income per low/mid/high periods

Calculate your wage percentage

Once you have your estimated wages and income, calculate your wage percentage by dividing your wages by income. 

For example, $300 in wages for $1,000 of income is a 30% wage cost. 

Anything from 25% to 50% is the standard in the industry, depending on the type of business, but you will become more familiar with your business the more you analyse your wage costs.

Analyse your wage percentage

Once the period is complete, it is important to analyse what happened by calculating your actual wage percentage to determine how you performed. 

Look at variances between the roster and actual work (timesheets) and ask yourself: 

• Was there any unauthorised or unnecessary overtime? 
• Did employees work later than planned? 
• If yes, was it because there was a genuine business need? 
• What could have been done better? 

This analysis will help you learn how to better manage your costs going forward.

Navigating the impact: managing business costs in the face of minimum wage increases

Australia’s recent minimum wage increase has been hailed as the largest in history, bringing positive changes for low-income workers. However, businesses, especially those in the retail and hospitality sectors, are voicing concerns about the detrimental impact this decision will have on their operations.

With already strained finances due to rising costs and reduced consumer spending, the mandatory wage rise will considerably add to the financial burden already felt by many businesses across the country.

As a result, business owners are encouraged to dig into their staffing data to understand their respective awards and utilise rostering software to manage costs and better control their wage expenditures. Hopefully, these measures may provide some relief in navigating the challenging landscape created by the minimum wage increase.